Contributor Since 2010
As suggested by the technical evidence after Monday's close, stocks got hammered on Tuesday with very negative market internals as the ARMs Index closed at 2.47, reflecting heavy selling pressure. Asian markets were also weak as many were down well over 1%. Similar losses in early European trading but the US stock index futures are up slightly in early trading.
The next major support for the S&P 500 is in the 1600-1610 area, which is the next potential downside target. It would take a powerful upside reversal, Wednesday, to slow the downside momentum. If prices stabilize today, it will likely set the stage for another push to the downside and Thursday's GDP data will be watched closely.
It is always important to watch both the NYSE new high and new lows data no matter what stage the market is in. In an earlier trading lesson, Tracking the Market's Trend, I discussed how this data could be used to determine the market's trend, and it has been negative for several weeks. There was no large spike in new lows yesterday but the new highs data has been deteriorating since June.
Looking at the stocks that were making new lows, there were several emerging market entities, as well as several key emerging market stocks. In Friday's A Contrary Bet For 2014?, I made the case that sentiment on emerging markets had become so negative that they could bottom out before year end.
Another reason for this view is my opinion that both the improving US and Eurozone economies will also stabilize the emerging market economies. Saturday's New York Times article reviewed the very weak performance of these markets and was another sign that the bearish sentiment was increasing.
So which stocks were on the new low list and what is the current status of the NYSE new high, new low data?
Chart Analysis: The chart of the NYSE Composite shows yesterday's down gap and the close below the prior day's low. The quarterly pivot at 9251 is now being tested and be sure to keep an eye on other key quarterly pivot data.
Click to Enlarge
The Turkish Investment Fund (TRF) tracks the largest Turkish companies and has a total expense ratio of 1.22%.
The Philippine Long Distance Telephone (PHI) is a $12.86 billion dollar provider of telephone service in the Philippines. It has a current yield of 3.00%.
What It Means: In the early stages of a strong market, the new-highs list can be a good place to look for market leaders and good momentum trades. In a down market, a concentration of stocks in the same sector or class can often be an early sign of the bottoming process.
This decline will certainly cause more panic selling in emerging markets, which is necessary before they can form a significant low. It will also increase the overall negative market sentiment, which I felt two weeks ago was necessary before the stock market could begin a sustainable new uptrend this fall.
How to Profit: No new recommendation
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.